JMK Jewels Pvt. Ltd. Vs ACIT (ITAT Delhi)
Demonetisation Cash Sales Recast: ITAT Applies GP Estimation, Rejects Section 68 in Full but Denies Blanket Acceptance
The Delhi Bench “G” of the ITAT, in JMK Jewels Pvt. Ltd. v. ACIT (AY 2017-18), dealt with cross appeals by the assessee and the Revenue arising from a massive addition on account of cash sales during the demonetisation period.
The AO had treated entire cash sales of ₹8.50 crore (01.10.2016 to 08.11.2016) as unexplained cash credits under section 68, alleging abnormal spike in cash sales, lack of KYC of customers, revised VAT returns, and inability to issue notices under section 133(6). The CIT(A), while accepting that section 68 could not be applied to sales already credited to the P&L account, nevertheless partly sustained the addition at ₹5.99 crore by applying a proportionate increase method based on past trends.
Before the Tribunal, the assessee argued that once books of account, purchases, stock records and VAT assessments were accepted, cash sales could not be recharacterised as unexplained credits, and that the action resulted in double taxation. The Revenue, on the other hand, sought restoration of the entire section 68 addition and revival of other business disallowances.
The ITAT adopted a middle-path approach. It held that:
